The National Audit Office has concluded that the Community Development Foundation, a former quango, and the Cabinet Office failed to properly scrutinise about £750,000 of match funding for its Grassroots Grants programme.
The programme was set up in 2008 by the Labour government to support the voluntary sector with £130m of funding.
The NAO concluded there was no misuse of public funds, but did identify weaknesses in oversight and record-keeping by the CDF, which administered the programme, and the Cabinet Office, which oversaw it.
In October 2013, David Nuttall, the Conservative MP for Bury North, raised concerns about a portion of funding that was released in 2011 under the £50m Endowment Match Challenge Fund component of the scheme. An earlier complaint by a member of the public had resulted in a Cabinet Office investigation that found no inappropriate actions had been taken.
However, the NAO found that proper application of the eligibility criteria should have ruled out the prospect of receiving match funding from the government for donations from the WO Street Charitable Foundation, a grant-giving foundation that focuses on education and poverty, particularly in Lancashire.
A total of £1.26m from the foundation was combined with an estimated £753,265 of government match funding to allow three charities in the north west to set up endowments for the benefit of other local charities and voluntary organisations.
Neither the CDF nor the Cabinet Office could provide evidence that the CDF had checked the three charities’ claims to ensure the foundation’s donations were eligible before the match funding was disbursed.
Both the CDF and the Cabinet Office made the case to the NAO that it could be retrospectively shown that they were eligible – but the NAO disagreed.
The disagreement centred on whether the WO Street Charitable Foundation could be classified as an "ineffective trust". The Cabinet Office and CDF’s own guidance offered four indicators, including that "the trust only gives out small amounts in relation to its cost". The NAO concluded that none of these applied.
The Grassroots Grants programme was wound up in 2012 and was succeeded by the £80m Community First programme, set up by the coalition government.
The contract to administer Community First was awarded to CDF, which had been converted from a non-departmental public body into a charity in 2011.
A CDF spokeswoman said in a statement: "We are confident that all the organisations involved in the decisions at the time have learnt lessons about information management and record keeping and incorporated these into future programme design and delivery."
The Cabinet Office indicated that it was impossible to conclude so long after the event that eligibility requirements were not met. It also said in a statement: "We recognise that improvements could have been made to the Grassroots Grants programme. The issues highlighted by the NAO were addressed in the design of subsequent programmes such as Community First."
Community First ran until April 2015; there is not expected to be a successor programme.